Why Commercial ?

Discussion in 'Commercial Property' started by Beano, 8th Jan, 2017.

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  1. Scott No Mates

    Scott No Mates Well-Known Member

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    I have seen 3% across a portfolio but >180 properties for the client with $10M+/month rent roll. (There were plenty of additional charges on top eg facilities management, maintenance etc).

    If you can get someone down below 4% over 2 properties, they'd be pretty keen. What are their other costs? Are they any good?
     
  2. kmrr

    kmrr Well-Known Member

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    I'm not sure of their performance as i currently self manage the 1 commericial i have. it has been quite easy to date however 4.5% as a rate is quite tempting. is it really worth the money though? i had no issues with my previous tenant however the new one is definitely more of an unknown and certainly a less established business.
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    I assume that it's a new lease and they are the leasing agents. You could give the agents 6 months to test the waters or continue to self-manage sad you already know where it's St but bail if you require PM assistance.
     
  4. The Y-man

    The Y-man Moderator Staff Member

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    Ok..... :eek:o_Oo_Oo_O:D



    The Y-man
     
  5. kmrr

    kmrr Well-Known Member

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    yes thats correct. it's a new lease at almost 10% more than it was previously leased for. the management fee would be 54% of the additional income though! will this management fee be a factor when re-valuing the property? getting a higher valuation is a priority for me because i want to use the additional equity for a deposit and i would hate to be offered 100k less on finance because i am now paying management fees.

    (happy to go into numbers via dm if it's easier to assess.)
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

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    Ooopsy *@%#$ autoincorrect.

    Sad = "as"
    St = "at"

    :)
     
    Last edited: 10th Jun, 2021
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  7. Beano

    Beano Well-Known Member

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    Read the lease .
    Most net leases allow the management fee to be recovered in the outgoings.
     
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  8. Temporiser

    Temporiser Member

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    What is the minimum deposit you need to buy into farmland? $1m or $2m or >$5m etc? Do you need to work the land yourself or can you share farm?
     
  9. Ruby Tuesday

    Ruby Tuesday Well-Known Member

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    Often it is 30%. You dont have to work the land yourself, probably better if you work for others or do contracting services for financing, and tax advantages. For grain farms most prefer to lease now. It hasnt always been that way, but now with new techniques, varieties, higher input high returns only in a very competive market sharefarming is obtained from the farmer. Share farming has tax advantages for the owner. Leasing has tax advantages for the farmer as the lease is fully tax deductable where principle repayments arent, money spent on machinery is. With leasing you can get payment in advance which can be further grown, pay bills or offset interest. Share farming you take on some risk and may take at least 12 months to maybe get payment, or years .but can get phenomonal returns. You can set up a feedlot even a modest one could easily increase returns by 50%. for little effort and possibly help with finance and expansion. grain storage can further increase returns. In higher risk area's sharefarming may be more desirable
     
    Last edited: 13th Jun, 2021
  10. Cousinit

    Cousinit Well-Known Member

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    Well, you won't need a deposit at all if you have other collateral to offer your financier:)
    There are many ways to make money with good farmland. Traditionally agriculture has been a low yielding investment especially in relation to cropping, beef and dairy which were the dominant primary producers. Some of my friends and neighbours have become very wealthy by having wind turbines and substations constructed on their land. Another has a large quarry in the corner of his farm which he receives lucrative payments for as well as a gas well site. A change of use often will add value and sometimes the homes can be excised to add value in years to come.

    There are also a few other benefits that are worth thinking about such as the use of averaging, FMDs and sometimes access to concessional loans amongst others. I have a concessional loan which has a current variable rate of .89%. Many people don't like this but the fact is farmers are doing work that the government wants done and taking risks.
     
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  11. The Falcon

    The Falcon Well-Known Member

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    @Beano is this just the case of renting a bit below market and telling lessee “go for your life” or do you offer incentive to be taken as refurb / fit out with lessee preference and standard make good?
     
  12. Beano

    Beano Well-Known Member

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    It's leasing for a little bit less than market and or giving a bit of money to encourage them to bring the premises to a higher standard.
     
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  13. The Falcon

    The Falcon Well-Known Member

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    Goodo makes sense thanks for that.
     
  14. Chris21

    Chris21 Well-Known Member

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    @Beano - This list is awesome. I am a newbie, trying to decide between commercial and resi. Can I extend by asking following

    1. Does commercial property appreciates like resi?
    2. Is it possible to do equity cash out easily in commercial like resi?
    3. Commercial property in major cities are giving yield of 5%. Is that attractive enough , given you can add granny to resi and earn similar or even higher return?
    4. Are commercial loan not more expensive than resi?
    5. Commercial needs 30% deposit compared to 20% in resi.

    Lastly, what is your view on below? what would be good price for this one?

    Suite 307, 11 Solent Circuit, Norwest, NSW 2153 - Medical & Consulting Property For Sale - realcommercial
     
  15. Beano

    Beano Well-Known Member

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    It can however.
    Commercial properties are generally driven by the business climate while residential are driven by population.

    Yes it is .
    Generally commercial properties value is driven by the future cashflow whereas residential are driven by the sentiment of the personal occupier so equity release for investments is more a numbers game.
    It's not the initial yield but the future prospective yield that is important.
    Generally but not always so.
    Residential rates are pretty well what's on the menu while commercial rates are dictated by your financial strength and the "deal"
    Generally that is so but the actual deposit is driven by the financial strength of the whole portfolio (especially where many of the properties are x- collatorised )

    At face value this lease would make this an attractive deal to a purchaser and financier however for the future there are many factors that need to considered
    I am not too familiar with medical centres so I suggest talking to a expert as these units m2 is set at a premium to other properties
    1 the rental compared with market
    2 inducements paid
    3 the prospects of losing the centre (eg to a mall or new centre)
    4 the ability to adapt the building to suit other tenants at the end of the lease
    5 the price





     
    Last edited by a moderator: 17th Jul, 2021
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  16. Beano

    Beano Well-Known Member

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  17. Chabs

    Chabs Well-Known Member

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    @ anyone wondering if there is less capital growth in commercial vs residential.

    everything is on a case by case basis, and the fundamental supply/demand drives CG just as much as it drives yields.

    Example: industrial CG in Sydney has outperformed residential CG significantly. When assessed over 5,10, or 15 years, and when assessed as a generic mid-sized freehold property in both categories.



    @Beano , my new question is what are your thoughts on commercial growth prospects in capital cities, it seems each city is having growing populations that will outstrip the growth rates of the past. Does this bode well for commercial?
     
  18. Beano

    Beano Well-Known Member

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    Certainly population growth is great driver for business.
    There are many types of Commercial properties . Each have many drivers for growth .
     
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  19. kmrr

    kmrr Well-Known Member

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    Just to colour this in some more, I purchased my CIP in October 2019 and got my new valuation back today. Its up 24% in 21 months. Not too shabby and I'm actually a little disappointed that the valuer was a touch too conservative but I'm taking it and will use the equity for another. Just goes to show that commercial property can actually generate good CG haha
     
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  20. kmrr

    kmrr Well-Known Member

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    @Beano can you please elaborate on "It's not the initial yield but the future prospective yield that is important? "
     

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